What is the CMHC?
The Canada Mortgage and Housing Corporation (CMHC) is a federal crown corporation. As a crown corporation, the CMHC falls under the Minister of Families, Children and Social Development. The CMHC was created to assist veterans returning to Canada after the Second World War to find housing. Today, the CMHC continues to help Canadians looking to find their dream home. The CMHC has multiple focuses, including, but not limited to, the National Housing Strategy, buying and renting policies and support, and a variety of other legislation and policies. However, this article’s focus is CMHC mortgage default insurance and the details around this critical and often-utilized program.
What is CMHC insurance?
CMHC insurance provides potential homeowners with a full range of mortgage default insurance options to assist buyers from all walks of life. The scheme is open to all Canadians and provides support to buy, improve or even renovate. Here are the seven main programs that fall under CMHC insurance:
CMHC Purchase (otherwise referred to as CMHC)
The most widely used CMHC insurance is CMHC Purchase insurance. This insurance is normally referred to as CMHC and is designed to help potential first time homeowners who struggle to meet down payment minimums. With this insurance, homebuyers can purchase a home with as little as a 5% down payment.
This program is designed and intended to assist potential homebuyers that are looking to improve an existing property. Improvement mortgage default insurance allows buyers to purchase an existing home and improve it via improvements or new construction.
For many self-employed people, financing a home purchase can be challenging through traditional lenders. Self-employed mortgage default insurance allows users to access CMHC mortgage default insurance. Users will need to provide documentation, but avoids the hassle of the traditional 20 down payment and proving your income over a length of time.
This mortgage default insurance is reserved for those new Canadians in the country with permanent residency or non-permanent residency status. The insurance ensures these newcomers to Canada find housing that will meet their needs and still be affordable on their income.
The Green Home program provides borrowers with up to a 25% refund on their premium if they buy, build or renovate for energy efficiency using mortgage default insurance commonly referred to as CMHC. There are specific conditions, including LEED certification for condos, 20% to 40% higher energy efficiency than code, and assessments by a Natural Resource Canada qualified energy advisor. However, this is an easy win for many home buyers and a simple way to get some money back!
If you are looking to invest in real estate, the CMHC income property insurance might be a great place to start looking. The insurance allows investors to utilize non-traditional financing options to allow them the opportunity to purchase an investment property.
CMHC wants to make home buying a simple process. If you are already paying a premium, the CMHC portability program will enable you to reduce or eliminate the premium on a subsequent home.
Who needs CMHC insurance?
CMHC insurance is designed for Canadians to help with the purchase cost of a home. No matter if you are a single person, married, or in a long-term committed relationship, CMHC insurance is here for you! There are a couple of requirements that you will need to meet to qualify for mortgage default insurance commonly called an insurance mortgage and are required for the purchase of a home.
Step 1: The home must be located in Canada.
Step 2: A maximum of 25 years amortization period.
You can choose to have a shorter amortization period, but the maximum amortization period to qualify for mortgages is 25 years.
Step 3: The maximum purchase price of the home cannot exceed $1,000,000.
Step 4: The minimum down payment on a home is met.
For your traditional single-detached home or individual condo, the minimum down payment is 5%. It should be noted that the the down payment rules are 5% on the first $500,000 and 10% down on the next $500,000.
This down payment can come from other sources, including a gift from an immediate relative, but certain restrictions are in place and can be looked up on the CMHC site. Recent changes to the down payment restrictions include borrowers not using loans or credit lines to meet the down payment requirements.
Step 5: Your gross debt service (GDS) ratio does not exceed 32%.
The gross debt service ratio is calculated by including the principal of the loan, interest, property taxes, heating and 50% of the condominium fees. This total number is then divided by your gross annual household income.
Step 6: Your Total Debt Service (TDS) ratio cannot exceed 40% of your gross household income.
Your TDS is calculated using your principal, interest, property taxes, heating, 50% of condominium fees, plus all other debt payments divided by your gross annual household income.
Who offers mortgage default insurance?
In Canada, Canadian lenders, including the big five banks, can only provide mortgage financing to qualifying homebuyers if they can give the bank a 20% down payment or more. If a homebuyer provides less than 20% down payment, the mortgage must be insured against default, otherwise called a high ratio mortgage loan. For some lenders, default insurance is also required for specific instances that can include the property being in a remote location or a higher-risk borrower borrowing under a particular program.
As lenders are looking to provide mortgages to borrowers, the lenders have found working with specific mortgage default options to be the best. The leading companies that offer this default insurance on a high ratio mortgage loan are:
The Canada Mortgage Housing Corporation
A federal crown corp, the Canada Mortgage Housing Corporation has provided new homebuyers with the tools and possibilities to purchase homes since 1946. As the leading insurance mortgage default group, CMHC offers everything from life insurance to investing options.
Genworth Financial Canada
Sagen, who was previously named Genworth Financial Canada, offers Canadians multiple programs to qualify for their default insurance. Their Homebuyer 95 program allows Canadians to purchase a home with a 5% down payment. We should note that Sagen did not adapt their debt ratios to meet the changes that CMHC announced over the last year. This means borrowers can still use any source at arm’s length to purchase or sell transactions such as credit, lines of credit and loans.
Like Sagen, Canada Guaranty is an independent and 100% private mortgage company. Their Flex 95 Advantage has many of the same benefits as Sagen, and the premiums are the same. Similarly, Canada Guaranty did not adopt the policy changes that CMHC adapted, and thus, borrowers can use any at arm’s length funding to secure their down payment.
How is CMHC insurance calculated?
CMHC insurance is calculated as a percentage. This percentage is based on the asking price, mortgage amount, otherwise called the total mortgage required, and the down payment. The easy rule of thumb is the higher the down payment percentage, the lower the premium.
You can find the exact premiums below that use the total mortgage required calculated as a percentage to determine the insurance premium rates.
How much does CMHC mortgage insurance cost?
Here are the current set premiums for CMHC insurance:
|Loan-to-Value||Premium on Total Loan||Premium on Increase to Loan Amount|
|Up to and including 65%||0.60%||0.60%|
|Up to and including 75%||1.70%||5.90%|
|Up to and including 80%||2.40%||6.05%|
|Up to and including 85%||2.80%||6.20%|
|Up to and including 90%||3.10%||6.25%|
|Up to and including 95%||4.00%||6.30%|
Naturally, these numbers might be hard to run and even understand. Which is why we have created our very own calculator from scratch to help calculate your insurance premium on your insured mortgage. The math is hard, but it should not be. With our mortgage insurance calculator, you will be able to find out how default insurance is calculated with your mortgage amount, asking price, amortization period, mortgage rates and insurance costs.
Mortgage Default Insurance: Case Study
Step 1: Calculate your down payment as % of home price
down payment %
Step 2: Calculate your mortgage amount
Step 3: Calculate your mortgage insurance premium